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As military tensions escalate across West Asia, economists and market strategists are warning that the real shock may be economic rather than military. A sustained disruption to oil flows through the Gulf could ripple through Asian economies, triggering higher inflation, weaker currencies, widening trade deficits and slowing growth across the region.

Few economies illustrate that vulnerability more starkly than India.

For Asia’s third-largest economy—already importing nearly 90% of its crude requirements—the conflict is emerging as a stress test for its energy security, macroeconomic stability and external balance.

The risk is not hypothetical. Much of the world’s oil and gas flows through the narrow waters of the Strait of Hormuz—a corridor barely 33 km wide at its narrowest point but responsible for moving roughly 20% of global oil consumption and about one-third of the world’s liquefied natural gas trade.

Any prolonged disruption there would reverberate instantly through energy markets.

India’s oil dependence remains structural

India’s exposure begins with the scale of its oil consumption.

The country is now the third-largest oil consumer in the world, importing nearly 5.2 million barrels per day of crude oil to meet domestic demand. More than 48–50% of those imports originate in West Asia, according to trade data compiled by the Global Trade Research Initiative.

In value terms, India imported about $98–100 billion (₹8.2 lakh crore) worth of goods from the Gulf region in 2025, with energy accounting for the overwhelming share.

Crude oil alone accounted for roughly $50.8 billion (₹4.2 lakh crore) of imports.

But oil is only one part of the equation. India’s dependence on the Gulf extends across multiple energy streams:

• 68.4% of India’s LNG imports originate in West Asia
• 46.9% of LPG imports come from the region
• Major suppliers include Saudi Arabia, Iraq, United Arab Emirates, Qatar and Kuwait

That dependence matters because energy imports feed directly into India’s inflation dynamics, fiscal balance and currency stability.

A sustained rise in oil prices tends to push up retail fuel costs, fertilizer subsidies and transport expenses—while simultaneously widening the current account deficit.

Markets already responding to geopolitical risk

Oil markets have already begun pricing in geopolitical risk.

Benchmark Brent crude has climbed to around $83–85 per barrel, reaching a new 52-week high as investors factor in the possibility of disruptions to Gulf energy infrastructure and shipping lanes.

But the real concern among economists is the possibility of a sharp supply shock.

Analysts say that if the Strait of Hormuz were partially blocked or shipping became unsafe due to military confrontation, Brent prices could quickly move into the $100–110 per barrel range.

For India, the implications are immediate.

According to estimates cited by several economists, every $10 increase in oil prices raises India’s annual import bill by roughly $15 billion (₹1.2 lakh crore).

That, in turn, feeds directly into the current account deficit and pressures the rupee.

India’s current account deficit had already widened to around 1.5% of GDP in FY2025, and a sustained oil shock could push it closer to 2.5% or more, analysts warn.

Nomura: oil shock is a “negative terms-of-trade shock” for Asia

A recent analysis by economists at Nomura Holdings argues that rising oil prices triggered by the conflict represent a “negative terms-of-trade shock for Asia”—a region dominated by energy-importing economies.

Unlike the Middle East or Russia, most major Asian economies—from India to South Korea—consume far more energy than they produce.

That means higher oil prices effectively transfer income out of Asia and into oil-exporting economies.

Nomura’s analysis identifies India, Thailand, South Korea and the Philippines as among the most vulnerable economies due to their high reliance on imported energy.

For India specifically, the bank estimates:

• A 10% rise in oil prices could reduce GDP growth by roughly 0.15 percentage points
• Inflation could rise by about 0.3 percentage points depending on fuel pass-through

Higher oil prices also tend to weaken Asian currencies because import bills rise while trade balances deteriorate.

The Indian rupee, analysts say, is particularly sensitive because oil imports account for roughly 3.1% of India’s GDP.

“Higher oil prices increase the import bill and raise the risk of capital outflows, which can place pressure on currencies and current-account balances,” Nomura economists wrote in their regional analysis.

Beyond oil: India’s wider supply chain exposure

Energy is only the most visible link in India’s economic relationship with the Gulf.

The region also supplies critical industrial inputs that feed directly into India’s manufacturing and export sectors.

In 2025 alone, India imported from West Asia:

• $3.7 billion worth of fertilizers
• $6.8 billion in rough diamonds, feeding the cutting and polishing industry in Gujarat
• $1.2 billion in polyethylene plastics, used across packaging and consumer goods
• Large quantities of sulphur, limestone and gypsum, key inputs for fertilizers, chemicals and cement production

The diamond trade is particularly sensitive.

India’s Surat diamond hub, which processes nearly 90% of the world’s rough diamonds, relies heavily on Gulf trading centers for supply. Any disruption to those flows could ripple through one of India’s largest export industries.

Similarly, petrochemical feedstocks imported from the Gulf underpin India’s plastics, packaging and manufacturing sectors.

A prolonged supply disruption could therefore affect everything from agriculture to consumer goods production.

Shipping routes under pressure

Another risk lies in maritime logistics.

Most of India’s oil imports—and a large share of its exports to Europe—pass through vulnerable maritime corridors including the Strait of Hormuz and the Red Sea.

If either route becomes unsafe due to conflict or naval blockades, shipping lines may reroute vessels around the Cape of Good Hope at the southern tip of Africa.

Such diversions can add 10–15 days to shipping times and significantly increase freight and insurance costs.

That would squeeze exporters operating on thin margins and increase the landed cost of imported commodities.

The ripple effects could extend across industries—from steel and fertilizers to consumer goods and electronics.

Policy buffers exist—but remain limited

India has taken steps over the past decade to cushion such shocks.

The country has expanded its strategic petroleum reserves, built storage facilities and diversified crude sourcing to include suppliers such as Russia and United States.

However, economists note that India’s total strategic and commercial reserves still cover less than a month of consumption.

That leaves limited room for maneuver if shipping disruptions persist for weeks.

At the same time, the government may face difficult policy trade-offs.

If global oil prices rise sharply, authorities must decide whether to allow retail fuel prices to rise—risking inflation—or absorb the shock through subsidies and tax cuts, which strain public finances.

A reminder of India’s geopolitical economics

The unfolding crisis underscores a long-standing reality of India’s economic geography.

Despite rapid growth and diversification of trade partners, the country remains deeply linked to West Asia’s energy ecosystem.

For decades, Gulf oil has powered India’s economic expansion—fueling its industries, transportation networks and households.

But that dependence also means that geopolitical tensions thousands of kilometers away can quickly translate into macroeconomic pressures at home.

For investors and policymakers alike, the message from economists is increasingly clear: if the conflict in West Asia drags on or spreads, the consequences will not remain confined to the battlefield.

They will show up in oil prices, inflation data, currency markets and corporate balance sheets across Asia.

And for India, the economic stakes could be particularly high.